Near record high in H1 demand driven by western investors

Global gold demand reached 2,335 tonnes (t) in the first half of 2016 with investment reaching record H1 levels, 16% higher than the previous record in H1 2009, according to the World Gold Council’s latest Gold Demand Trends report.

Q2 2016 continued in the same vein as the first quarter this year with overall gold demand growing to 1,050t, up 15% from the Q2 2015 figure of 910t, boosted by considerable and consistent investment demand. Investment demand reached 448t as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability. Exchange traded funds (ETFs) had a stellar first half of the year at almost 580t due to the additional inflows in Q2 of 237t. Bar and coin demand was also up in a number of markets in Q2, including the US at 25t (up 101%), leading to H1 bar and coin investment of 485t, 4% higher than the first half last year.

A cause and effect of the growth in investment demand was a 25% rise in the US$ gold price, the strongest H1 price gain since 1980. This contributed to lacklustre consumer purchasing, particularly in price sensitive markets. While there were increases for jewellery demand in the US (up 1%) and Iran (up 10%), the customary powerhouses of China and India saw drops in Q2 of 15% to 144t and 20% to 98t respectively. India was further impacted by rural incomes remaining under pressure, as well as the government’s decision to increase excise duty. Meanwhile, China faced a challenging quarter against a relatively soft economic backdrop and the implementation of new hallmarking legislation in May.

Central bank demand decreased 40% in Q2 2016 (77t), compared to 127t in the same period last year, resulting in net purchases for H1 now totalling 185t. While this quarter was the lowest level of net purchases since Q2 2011, it comes amid a significant rise in gold prices over H1, dramatically increasing the value of central bank gold holdings to US$1.4trn. Central banks are still expected to be key contributors to global demand, as gold provides diversification from currency reserves and, most notably, the dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented:

“The strength of this quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2,335t. The global picture for gold is dominated by considerable and continued investment demand driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty.

The foundations for this demand are strong and diverse, drawing on a broad spectrum of investors accessing gold via a range of products, with gold-backed ETFs and bars and coins performing particularly strongly. But the global gold market is, and has always been, based on balance: so whilst investment is currently the largest component of demand, we see a gradual return for the jewellery market in the second half of 2016.”

Total supply for Q2 2016 saw an increase of 10% to 1,145t compared to 1,042t in the second quarter of 2015. The primary driver of this increase was recycling, which saw a significant rise of 23%, as consumers capitalised on the rising gold price, leading to first half recycled gold supply of 687t, 10% higher than the 626t seen in H1 2015. Mine production remained broadly flat at 787t (790t in Q2 2015), while gold producers added 30t to the hedgebook.

The key findings included in the Gold Demand Trends Q2 2016 report are as follows:

Overall demand for Q2 2016 increased by 15% to 1,050t, up from 910t in Q2 2015.

Total consumer demand was 656t down 9% compared to 723t in Q2 2015.

Global investment demand was 448t, up 141% from 186t in the same period last year.

Global jewellery demand fell 14% to 444t versus 514t in the second quarter of 2015.

Central bank demand fell 40% to 77t in Q2 2016, compared to 127t in the same period last year.

Demand in the technology sector fell 3% to 81t in Q2 2016.

Total supply was up 10% to 1,145t in Q2 2016, from 1,042t in Q2 2015. Mine production in Q2 2016 was virtually flat year-on-year at 787t.

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